Ask us: On investments

Q. I would like to know the pros and cons of investment options such as capital guarantee and high-return plans. As a 23-year-old newbie to IT industry, can you suggest a good way of saving for the future?

A. Other than government schemes, there is no capital guarantee, in the real sense, anywhere. There are money-back plans in insurance, and they are not quite great ‘investment plans’ most of the time. Any other guarantees anybody offers, you will likely be mis-selling. Do not fall for them.

High return equals high risk which equals high probability of losses. If you get this maxim, them consider investing for the long term (7-plus years) in products such as equity mutual funds and stocks which can improve your chances of getting ‘better returns’ than FDs. There are no short cuts to high returns and even if you do taste such success, they are unlikely to be sustainable.

As a young investor, you can go one step at a time into quality regulated products and take some calculated risks. Outside of your EPF, you can also open a PPF account for tax saving. For long-term investments, consider equity index funds such as Nifty 500. You can also use short-term debt funds such as banking and PSU debt to start investing along with the index funds. Read up on these products and know their risk-reward profile.

Q. I’m planning to invest in stock markets. What are the key criteria to keep in mind while opening trading and demat accounts?

A. Given the convenience of transacting online, look for a broker will full fledged online service. Look for their track record, brokerage licenses and compare their brokerage structures. Cost is the key differentiating factor. Some broking structures work well for traders and not so much for long-term investors and vice-versa. Hence, make the comparison based on how frequently you intend to invest. Short-term investors may have to check and compare the margin facility available. Check their ability to provide research and advisory service and whether they can help you review your portfolio, especially if you are new to stock investing. Support service is also important.

Use their demo service or a trial to see how seamless the user experience is on web and mobile. Check if you will get necessary reports (including capital gains) whenever you need them. Practically speaking, if the decision is too hard to take, simply go with what your banker (if it is among the large banks) provides as you will at least have them all in one place until you are more comfortable to experiment newer pastures.

Q. My daughter, 40, is employed as teacher in UAE Government School and living with family there. Her husband works in a private hospital. Her daughter is in class 9. She wants to invest in a pension scheme with no risk so that she can get monthly pension about ₹30,000-₹40,000 when they return to Kerala after her daughter’s higher studies. Her plan is to invest ₹10 lakh every year. Please advise.

A. Since your daughter has at least 5-10 years before her child completes higher education, she can consider investing in NRE deposits. While current rates are low, she can lock in for 12-18 months and reinvest at higher rates. When she comes back, she can purchase an immediate annuity plan. She can also invest in RBI Floating Rate Bonds (if available then) to get regular income once she is a resident. This way, she will likely allow her money to grow better than regular pension plans. If she will take some risks, then about 10-15% of her annual investment can be invested in equity index funds based using monthly SIPs. These are low cost and will deliver market-linked returns.

Q.I am 22 and recently joined an IT firm. My salary is ₹28,000 a month. Please suggest ways of getting ₹1 lakh by the end of the year?

A. Consider investing about ₹8,500 per month in a recurring deposit of any large bank assuming a 5% interest rate. This is the best you can do as your time frame is truly short to take any other risk.

(The author is co-founder,

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